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Chapter 1: Globalisation
Definition: A shift towards a more integrated and interdependent world economy.
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Chapter 1: GlobalisationDefinition: A shift towards a more integrated and interdependent world economy.

"The World is Flat"

6) Offshoring

7) Global Supply Chains

5) Outsourcing

8) Insourcing

4) Open source software and uploading (online communities)

9) Development of search engines

3) Workflow software (enables faster collaboration)

10) Wireless, digital, mobile, personal and virtual technologies.

2) Development of internet protocols

1) Fall of Berlin Wall and Economic liberalisation

Drivers of Globalisation

Competition

International competition drives for cost reduction and also prompts improvement in quality, efficiency and productivity of goods and services.

As international barriers fall, firms have to compete internationally and domestically to succeed.

Cost

Difference in resource costs in different countries. Businesses search for lower cost in production of raw material and components or relocating production of service operations abroad such as offshoring and outsourcing of value chain activities.

Internationalism enables firms to take advantage of economies to scale hence lower production cost.

Market

Domestic sales growth in many developed countries has slowed down and market has become more saturated. Businesses are increasing reliance on international sales for business continued expansion.

Rise of income in international markets such as China and India.

Population has growth by doubled from 3 billion in 1960 to over 7 billion in 2013.

Proximity of market has also become a driver for FDI.

Economic Liberalisation

Describes the internal economic reform such as deregulation, privatelisation and removal of barriers to trade.

Especially in the 19th century there are more openness to free trade among countries.

Free market economies are supported by IMF and the world bank.

Free market capitalism after the collapse of the communist central planning brings growth to the economy.

Economic liberalization enables business to take advantage of resources outside its traditional/geographical boundaries.

Technological

ICT enables for internet communication, information sharing and operation and control of remote activities such as outsourcing and offshoring.

Micro processes which facilitated the development of computers and the creation of WWW.

Political

Relatively world peace and security after the end of world war.

China and other countries previously from the soviet bloc has drive trade and investments.

The fall of berlin wall symbolise the end of communism in Eastern Europe and the end of Cold War.

Growth in mini-multinationals with international sales accounting for large shares in revenue. (Eg. China's Lenovo acquired IMB's PC division in 2004).

4) Change in World Order

Collapse of Russian communism and new opportunities in Eastern Europe.

The rise in china and india, Mexico, Latin America and Middle East.

1) Change in World Output and Trade

1960s, US dominated world economy and trade.

2008, US only accounted for 20% world economic activity.

By 2020, developing countries are likely to account for 60% of global economy.

Implications on Globalisation

Jobs & Wages

Supporters:

Economic growth, more jobs created.

Increase wealth and efficiency

generate labor market flexibility

create jobs in developed countries.

Advanced economies of developed nations.

Opponents:

Job Losses

Force wage lower in developed countries.

Labour exploration

Shift in Economic Power

Opponents:

Economic power shifting away from national government towards supranational organisations (Eg. WTO, EU)

Loss of distinctiveness of national identity.

Individual countries in EU cannot impose their own immigration or monetary policies.

Supporters:

Power of organisations is limited.

Organisations are designed to promote the collective interest of member countries.

Labor and Environment

Opponents:

Damage to the environment --> less developed countries --> Lax environmental policies.

Lowers labor standard.

Weakens protection of the environment

Labor exploitation.

Supporters:

Investment raise labor standards

Open economies most environmental friendly.

Economic growth encoruage higher labor and environmental standards.

More companies adopting sustainability policies.

Wealth Distribution

Opponents:
- Growing gap between rich and poor.

Supporters:
- Gap not caused by globalisation but other policies of government.

Globalisation

Globalisation of MarketMerging of historically distinct and separate market to form a huge global marketplace.

Globalisation of ProductionSourcing of goods and services from all parts of the world to take advantage of national differences in the cost and quantity of factors of production to better compete with competitors.